What will the second machine age mean for the future labour market?

The recent book The Second Machine Age: Work, progress and prosperity in a time of brilliant technologies by Brynjolfsson and McAfee has ignited debate about the impact of transformative future technology on the labour market. This article on technology by Lewis Silkin asks: are we really at risk of advancing technology sparking underemployment?

The second machine age

In their recent book The Second Machine Age: Work, progress and prosperity in a time of brilliant technologies Brynjolfsson and McAfee analyse the impact of transformative technologies on the labour market.

The authors use a graph to show human social development and population growth over the period from 8000 BCE to the present day. There is a very gradual increase in gradient (it almost flatlines) until the late 18th century but it then rises on a steep, almost vertical, trajectory. The tipping point, they say, is James Watts' invention of a sophisticated steam engine in the period from 1765 to 1776. Watt's steam engine led to what the authors call the First Machine Age, the industrial revolution. It allowed us to overcome the physical limitations of humans and animals leading to mass production and mass transportation.

The authors suggest that we are now entering the Second Machine Age - where computers and digital future technology will do for mental activity what the steam engine did for physical activity.

Technological change

At a time of astonishing technological progress, the authors argue that we are now at an inflection point when change will accelerate and the potential of the technology we have seen to date will really take off. As examples, they point to the use of computers to diagnose disease, robotics in logistic warehouses and driverless cars. The technology of the future is already here.

The good news, the authors claim, is that these changes will be profoundly beneficial. We will be able to increase the variety and volume of consumption, not just physical things but information, expertise and even entertainment. However, they also identify emerging economic and social challenges brought about by the disruptive impact of technology. As computers become more powerful, the need for certain types of workers will fall. Workers who have the skill to "use technology to create and capture value" will be in demand. Those with "ordinary" skills, abilities and education will lose out because digital technology is taking over what they do. Optimistically, the authors suggest that, just as we overcame problems of the industrial revolution such as squalid housing, malnutrition and child labour, these new problems are not insurmountable. But swift action is needed.

Bounty and spread: digitisation changing economics

Brynjolfsson and McAfee identify the economic consequences of these developments as "bounty" and "spread". Bounty arises from the increase in volume, variety and quality of products coupled with the lower cost of much of it. Spread is the growing inequality between the “haves” and the “have nots”.

To illustrate this, they take photography as an example. Of the 3.5 trillion photographs taken since 1838, ten per cent were taken in the last year. Digitisation changed the economics. A team of 15 people at Instagram created an app with which 130 million users created over 16 billion photos. Facebook bought it (and employed 4,600 people). Kodak, in contrast, used to employ 145,000 employees itself with many thousands more in the supply and distribution channels. They say that this illustrates bounty: exponential increases in digital photography at very low cost. However, it has also led to increased spread: those who set up Instagram and Facebook are no doubt extremely rich, the employees of those organisations are working for a thriving industry and presumably reasonably paid. But a large number of former workers in the industry were put in a position in which they had to find other work, leading to a greater spread in income distribution than previously. That is commonly what happens when traditional industry disappears. Sunderland used to be dominated by shipbuilding and mining. In a matter of a few years, the ship yards and mines closed. Interviewed for the documentary All in the best possible taste a former boiler maker was asked what was left. Poignantly, he summed it up as “generosity.....and call centres”.

Whilst "technological progress will bring unprecedented bounty", the social cost cannot be ignored. Looking at the period 1963 to 2013, Brynjolfsson and McAfee show that wages for full-time male workers have increased significantly for graduates but decreased in absolute terms for non-graduates. Big data and analytics value abstract and data analytical reasoning; the demand for less (or differently) skilled labour is falling.

The share of income between owners of capital and labour is also changing. The share remained relatively consistent in Western Europe in the period after the Second World War. However, over the last ten years the share going to labour has declined despite the impact of highly paid employees in the financial, legal, corporate and sports sectors. This, it is suggested, is driven primarily by technology and globalisation.

Future technology and un(der)employment – what is to be done?

So, does technology create unemployment? That was certainly the fear of the followers of Ned Ludd when they attacked textile machinery in the early 19th century. But despite the disruption to the labour market, the "response" of dynamic capitalism to the Luddites was to create new markets with new opportunities for labour. Perhaps this will happen again. The authors appear reasonably optimistic but suggest that if it is to happen there need to be significant changes in the way we organise training and work.

So what is to be done? Brynjolfsson and McAfee believe that although computers will increasingly take over, humans have the upper hand in what they call ideation - coming up with new, creative ideas and innovating. Whist it is easy to imagine programming and algorithms improving and making many tasks redundant, there will always be "special cases" where human imagination and intuition have the advantage over computers. But the education sector needs to adapt to provide a future workforce with skills in ideation and complex communication.

As longer-term ideas, they look at negative income tax - which would be a perhaps more generous version of our Working Tax Credit scheme, effectively giving lower paid employees additional income and list (without advocating) various ideas such as:

a mutual fund distributing ownership of capital more widely with a dividend stream going to all citizens;

using taxes, regulations, prizes and other incentives to direct technological change towards machines that augment human ability rather than substituting for it;

paying people to do socially useful tasks;

identifying certain categories of work for "humans only";

a "made by humans" labelling movement;

vouchers for basic necessities to relieve poverty;

increasing public sector employment on useful tasks: infrastructure and environmental.

Brynjolfsson and McAfee’s solutions are rather anodyne and less interesting than their analysis of "the problem". Although some of what they say may prove exaggerated, the trends they identify will affect the labour market, quite possibly profoundly.

They may be right that ideation will become an important skill, but there must be some limit to how many of us can usefully “ideate” at one time. Our approach to recruitment and measuring productivity will also need to change. Currently we tend to favour quantifiable criteria over those that are harder to assess. Identifying who is and who is not a "great ideater" and measuring intellectual output will not be easy. Are we up to it?

To date, technological change seems to have led to more pressure and demands at work coupled with more stress-related absence. Digital technology offers employers the ability to monitor and control more and more of daily working life. The development of the "internet of things" will only add to the pressure in the workplace. Are Brynjolfsson and McAfee really right to suggest that there will be less work to go round? I am waiting!